The Polish Labor Market
Many hardships have been endured by the people of Eastern Europe since the fall of communism. The transition from a centralized, command economy to a market economy has caused problems for the people who participate in the labor force. Unemployment was rising coupled with a decrease in the real wage rate. However, these problems were anticipated and a social safety net was created to break the fall of those most affected. This situation occurred in all Eastern European countries, including Poland, yet each country's experience was unique.
Poland's labor market has suffered great losses since the implementation of the Big Bang approach in 1990. The country fell into a deep recession with production decreasing to grave levels. Even though production fell, the rise in unemployment did not match it. Unemployment was faced for the first time in this country and was recognized as a legitimate labor force status. "From zero or close to zero at the start of the year, unemployment grew to 6.1 per cent of the labor force (1,124,000) by the end of 1990." (Gora, pp. 154) Out of this number 51 per cent were women. At this time "unemployment seems to derive mostly from the contraction of demand, rather than from large scale restructuring". (Chilosi, pp. 64)
Even though the unemployment issue in Poland is severe, the problem was foreseen. A social safety net was implemented to combat the consequences of unemployment before it became uncontrollable. On December 29, 1989 the Act "On Employment" was created. This act recognized the unemployed and established the ability to receive unemployment benefits. This act was taken advantage of by the people, therefore, it was revised with many restrictions on July 27, 1990. These restrictions were as follows: 1) Citizens could receive benefits only if they were registered with the regional labor office, 2) They must be actively seeking employment and must have been employed for at least 180 days during the past twelve months before registration, 3) Citizens receiving benefits cannot turn down two job offers within thirty days or refuse a public works job without good reason. Jobs were defined according to the person's training and education.
"Subject to these restrictions, unemployment benefits are paid for an indefinite period, the first three months at 70 per cent of the individual's previous wage and the following six months at 50 per cent, after which the rate falls to 40 per cent. Benefits must not be lower than 95 per cent of the minimum wage, nor higher than the average wage." (Gora, pp. 149)
This act was revised again in October 1991, "21% of registered unemployed were deprived of the right to unemployment benefits" (Chilosi, pp. 68) yet problems still persist. In Katowice a public works program was established but only three applied out of twenty five positions available. "This hints at the fact that a sizable proportion of the registered unemployed are still not really involuntarily unemployed." (Chilosi, pp. 67) Another problem that persists is the condition of the peasant-workers. These are citizens that were employed and also owned at least one hectare of land. They were dismissed from their jobs because of another form of livelihood yet the food that is produced on their plot of land is not sufficient to feed their families. They are not eligible to receive unemployment benefits because they own at least one hectare. This status of peasant-worker was established because private ownership was prevalent even before the transition. "Of those employed in 1990, 33.8 per cent worked in the private sector. This large share in comparison with other Eastern European countries is due primarily to a heavily privatized agricultural system: in 1990, 80.7 per cent of all workers employed in agriculture worked in private farms or enterprises." (Gora, pp. 150)
Another aspect of countries in transition, including Poland, is the number of people who work in the unofficial economy. These people may be receiving benefits from the government yet are earning an income that the labor office is unaware of. These people normally work in both the unofficial economy as well as the official one. Few only work in the unofficial economy but anyone that does has an effect on the labor market as a whole.
A factor that has persisted in many economies that have switched from a command economy to a market economy is labor hoarding. This is the fact that state enterprises still employ an inefficiently high amount of labor. During the communist era this was preferred because all able bodied people were forced to be employed and wages were low so the firm was able to hire plenty. Yet, in a market economy with free prices this is not efficient for profit maximization. However, the state firms have been continuing this practice for many reasons. "A principle explanation is that most firms are irregularly supplied with materials and energy, so that employees are frequently either underworked or overworked. Managers of state enterprises generally keep more workers on the payroll than are needed if production goes smoothly." (Gora, pp. 151) Labor hoarding is also represented by the unemployment to vacancies ratio known as the U/V ratio. This ratio jumped from 2 to 21 in the beginning of 1990 which shows the probability of the unemployed finding a job is decreasing. Labor hoarding has a great effect on this ratio. Because the firms are overstaffed if they require a new job position they usually just move one of their present employees to the new position rather than hire a new person. The restrictions on the increase of wages perpetuates the situation because the firms have no incentive to shed their labor because of the low costs of keeping them on the payroll.
Wages in the Polish economy have remained fixed unlike the prices. This was done by placing "a very high, progressive penalty tax for each per cent of wage increase above a certain limit. The limit is based on the previous month's consumer price increase multiplied by an indexation coefficient." (Gora, pp. 160) This has caused the real wage rate to decrease because prices have soared. This caused "real consumption expenditure in 1990... [to] decrease with respect to 1989, especially in the first months of the year. For the whole of 1990 the real percentage decrease in total private consumption as reported in official statistics was 15.2%." (Chilosi, pp. 69) This plan, known as popiwek, was implemented in order to curb inflation. The thought was that if wages were liberalized as well as prices a spiral effect would occur. This form of stabilization was both seen as successful and harmful. It did prove to halt inflation to a one time jump of prices rather than a perpetual climb, yet others believe it was too detrimental to the workers. A fixed wage rate promoted labor hoarding. The wage was markedly low and this allowed the state firms to hold on to their labor force rather than allowing the employees to relocate to a sector where they were demanded. Yet, this outcome is not all bad. If wages were liberalized there would have been greater unemployment because the market was not yet able to absorb the increase in the unemployed, and this could not be allowed. Hence, popiwek was interpreted as "in times of recession the Polish state firm exerts its full market power with the aim to acquire the financial means to pay going wages to the possible highest percentage of its employees, reducing lay-offs to the minimum." (Chilosi, pp. 71)
Other problems in the Polish labor force are evident as well. The psychological outlook of the people that comprise the labor force is still geared towards the old regime. The people have been taught in one manner for their whole lives and now they have been asked to change in one "bang". This does not occur like the liberalization of prices, this is a learned thought process. Another poor aspect of the Polish system is the lack of proper housing. People are not able to move to where there is a demand for labor because they cannot find housing. Citizens have been placed on waiting lists for the transfer of houses yet this may take up to ten years. Many factors will have to change in the Polish labor market before the situation comes under control. New laws must be implemented and a greater protection of the people must occur for the situation to improve.
Chilosi, Alberto. ECONOMIC TRANSITION and the UNEMPLOYMENT ISSUE. Economic Systems, Vol. 17, No. 1, March 1993, pp.63-78.